Foreign banks and brokerages see the latest soft inflation print in India paving the way for further RBI policy rate cuts with some even predicting a larger, non-standard 35 basis point cut in the April 9 MPC meeting. 

Some foreign banks expect a sub-4 per cent inflation print laying the ground for 50 basis points more cuts this calendar  year. 

India’s Headline CPI inflation softened to a seven month low of 3.6 per cent in February 2025, from 4.3 per cent in January, lower than consensus expectations. The decline in headline inflation was driven by a 2 percentage point decline in food inflation (21- month low) to 3.8 per cent year-on-year on the back of sequential contraction in vegetables and pulses prices.

Aastha Gudwani, India Chief Economist, Barclays Research sees the possibility of the RBI MPC delivering a non-standard, larger 35- basis points policy repo rate cut in the April meeting. “Our base case remains a 25 basis points cut, alongside a ‘neutral’ stance”, she added.

“We are tracking March CPI inflation at 3.8 per cent, suggesting a sizeable undershoot of the RBI’s Jan-Mar forecast of 4.4 per cent y-o-y, paving the way for a 25 basis point cut in April”.

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Radhika Rao, Executive Director & Senior Economist, DBS Group Research said “With CPI inflation off the boil and real rates at ~230 basis points, the RBI monetary policy committee undertook a 25 basis points rate reduction in February. 

If inflation stays aligned with the targets, monetary policy is likely to assume a growth supportive stance in the quarters ahead”.

Beyond a 25 basis points cut in February, DBS Group Research expects another 50 basis points reduction in 2025. This will amount to half of the US Fed’s 150 basis points projection (100 bp delivered in 2024 and DBS Group Research baseline has two more cuts in 2H25), Rao said, adding that “a change in stance to ‘accommodative’ in April will not surprise us”.

‘Rate cut in April’

She also said that the Wednesday’s retail inflation numbers are likely to cement expectations for a back-to-back rate cut in April. “Dovish policy minutes, a downshift in annual growth this year and a sub-4 per cent inflation print lay the ground for 50 basis points more cuts this year, with the next move likely in April”, Rao said. 

Tanvee Gupta Jain, Chief India Economist at UBS said “We expect headline CPI inflation to average 4.2 per cent in FY26 (vs 4.7 per cent in FY25E). We maintain our view that there is scope for a further 50 bps cut in the report rate in this cycle, with the next one pencilled in for the April policy”. 

Santanu Sengupta, Chief India Economist, Goldman Sachs Research, said “Overall, we lower our Q1 headline inflation forecast by 20 basis points to 3.9 per cent y-o-y, but maintain our CY headline inflation forecast at 4.2 per cent y-o-y”.

Since February 2023, the RBI has implemented one policy rate cut. On February 7, 2025, the RBI reduced the repo rate by 25 basis points, bringing it down from 6.5 per cent to 6.25 per cent. This marked the first rate reduction in nearly five years, following a series of rate hikes totalling 250 basis points between May 2022 and February 2023. Prior to this cut, the RBI had maintained the repo rate at 6.5 per cent since April 2023.